AVIATION INSURANCE 81 AVIATION INSURANCE BY BARBARA H. WOODWARD According to the United States Bureau of Air Commerce fig- ures there were only 9,152 licensed aircraft in the United States as of January 1, 1938 and of this number the scheduled airlines operated 386. The values of these planes range from less than one thousand dollars up to three-quarters of a million dollars, while the uses to which the aircraft are put are numerous and varied. Furthermore, conditions in airplane design and operation are changing so rapidly that it is impossible to keep up with developments. For these reasons it can be seen that the time for placing aircraft insurance on an actuarial basis has not yet arrived. Therefore this paper will not be concerned with possible rate- making formulae but will confine itself to a brief review of the aviation rate-making picture as it exists today with particular emphasis on the main casualty coverages. AVIATION INSURANCE CARRIERS Aviation insurance in the United States is written by three underwriting groups of companies; the Aero Insurance Under- writers, the Associated Aviation Underwriters and the United States Aviation Underwriters. These three groups are members of the Board of Aviation Underwriters, the rate-making organiza- tion for aviation insurance, which at the present time only oper- ates in New York State. CLASSIFICATIONS Aviation risks have been classified into five main classes accord- ing to the use of the aircraft. These classes are: 1. Private Pleasure All planes used for private pleasure and personal business pur- poses exclusively. 82 AVIATION IN SURANCF.. 2. Industrial Aid Planes used for transportation of executives and employees and for sales promotion purposes and owned by a business organization not otherwise connected with the aviation business. 3. Commercial--Flying Services Planes operated for hire in connection with passenger and cargo carrying, charter flights, photography, sales demonstration, either including or excluding student instruction. 4. Aircraft and~or Aircraft Engine Manufacturing 5. Scheduled Air Lines Planes carrying passengers, mail and cargo on a regular schedule. HULL INSURANCE COVERAGE Hull Insurance covers against loss or damage to the aircraft specifically described in the policy due to the following perils : Fire A--fire on the ground only, excluding the running of engines. Fire B--fire on the ground only, including the running of engines. Fire C fire on the ground and in the air, excluding fire follow- ing crash. Fire D--fire under all circumstances. Perils of the Air or Crash--Damage to the aircraft during flight due to collision with the ground, water or other object, includ- ing damage by fire or explosion caused by such collision and including damage due to stranding or sinking or water dam- age arising from flight. An aircraft unreported for sixty days after take-off is deemed to have been lost by reason of one of the above flying perils. Windstorm.--Damage to the aircraft by Tornado, Cyclone or Windstorm except while the aircraft is in flight or taxiing subsequent thereto. AVIATION INSURANCE 83 Land Damage--Damage to the aircraft while on land, but not in flight or taxiing, caused by hail or by being struck by or colliding with another aircraft, vehicle or object (excluding any aircraft, vehicle or object owned or operated by the Assured or his employees). Mooring--Damage to water-alighting aircraft, while not in flight or taxiing, caused by windstorm, hail, stranding or sink- ing or being struck by or colliding with another aircraft, vehicle or object (excluding any aircraft vehicle or object owned or operated by the Assured or his employees). Theft, Robbery and Pil]erage--Theft, robbery and pilferage, except by any person in Assured's household or employe. CASUALTY ~NSURANCE COVERAGE Casualty Insurance is the usual third party liability coverage comparable to bodily injury and property damage on automobiles except that bodily injury coverage on aircraft is subdivided into public liability and passenger liability which are separately in- sured and rated. A few years ago the aircraft liability policy contained no omnibus clause but merely covered the named as- sured for damage due to the specific aircraft while being flown by a named pilot. At the present time the insurance attaches to the specifically described aircraft while being flown by a spe- cifically approved pilot and if such conditions exist then the insur- ance covers not only the named assured but also any person while riding in, any approved pilot while operating or any person legally responsible for the operation of the aircraft provided the operation is with the permission of the named assured. It will be noted that the pilot still has to be approved, which is not the case in automobile insurance. HULL AND CASUALTY RATES Each aviation risk is still rated on its own merits based on infor- mation received by the underwriters in the application for insur- ance. Advisory rates have been set up for the average risk falling within the classifications of private pleasure, industrial aid or commercial. A majority of the aviation risks fall within these 84 AVIATION INSURANCE classes and the average advisory rate is quoted unless unusual circumstances are present. The New York Insurance Department has permitted the Board of Aviation Underwriters to file a rate range for each classification within which the advisory rates fall and within which each quotation falls. This filing will be con- tinued until sufficient experience has been developed to permit the establishment of standard average rates. As aircraft are not confined to any particular territory, there are no territorial differentials in rate with the exception of wind- storm insurance in Florida where the rates are loaded for cover- age during the hurricane season. For the coverages which depend on the flying hazard, that is, passenger liability, public liability, property damage and crash, there is a differential in rate depending on the experience of the pilot approved by the underwriters to fly the plane. The fact that the experience of the pilot directly affects the flying hazard is amply confirmed by the latest Bureau of Air Commerce figures for the period July to December 1937 which show that out of 1,075 accidents in all flying operations excluding scheduled air- lines, 55.3% of the accidents were due to pilot errors. It is interesting to observe that in scheduled air line operations where all the pilots are experienced the figures for calendar year 1937 show that out of 50 accidents only 18.2% were caused by pilot errors, the greatest percentage of accidents (25.4%) being caused by the weather. Average advisory hull insurance rates are given in the following table: RATES Commercial Private Industrial Coverages Pleasure Aid Excluding Including Instruction Instruction Fire A .......... 2½% 2½% 2½% Fire B ................... 2~ 2¾ 3~4 3~ Fire C ................... 3 3 3~ 3~ Fire D ................... 4 4½ 4½ 5 Crash (10% Ded.)* ....... 12 or 12 ½ 12½ or 13% 14 or 15 18 Windstorm (5% Ded.) ..... ½ ½ ¾ Land Damage (2½% Ded.) ½ ½ ½or~ ½or% Mooring (5% Ded.) ....... 1½ 2 2 or2½ 2 or 2½ Theft ($25 Ded.) ......... % % ~4 * Crash rates quoted contemplate a pilot with over 500 hours' flying experience. AVIATION INSUP~NCE 85 The above rates are subject to 100% co-insurance and are ap- plicable only to a new plane insured for the full retail list price. Where a new or used aircraft is insured for less than the retail price the basic rates are loaded in order to pay partial losses in full. The formula used is as follows: Loaded Premium = [X × r] + [(Y -- X) X l'l Where X = Amount of insurance Y = retail list price r = basic rate I ~ loading rate The loading rate is a percentage of the basic rate, viz.: Coverage Loading Rate Fire,.. °°.o°o o.,o.°°..o. °°°o.o. °.°~og °o,6 15% of Basic Rate Crash ................................... 25 " " " Windstorm .............................. 40 " " " Land Damage ............................ 40 " " " Theft ................................... 60 " " " Mooring ................................. 40 " " " The percentage loadings for fire and crash are comparatively low on the supposition that the majority of losses under these covers will be total. The Board has ruled that the retail sales price minus the amount of insurance shall not exceed the amount of insurance, or (Y--X) shall not exceed X. The operation of this ruling in practice is that when the value of a plane has depreciated to ~ the retail sales price, the full loaded rate is applied and this loaded rate is a maximum. There is no specific rate differential based on the type of con- struction of the aircraft but this factor is considered by the Under- writers when making quotations. Average advisory casualty insurance rates, where the pilot has over 250 hours' flying experience, are given in the following table : RATES Commercial Coverages Private Industrial Excluding Including Pleasure Aid Instruction Instruction Public Liability ..... I $5o $6O $ 75 $ 80 or $85 Property Damage ... i 50 60 70 75 or 80 Passenger Liability ]i 30 55 75 75 Minimum per plane ~ 50 '/5 100 100 86 AVIATION INSURANCE For private pleasure risks where the pilot has less than 250 hours' flying experience the rates are: Public ProD. Exper~ ce of PJ]ct F~ s~z ~r I.i~ bil~ty Liab. Dam. 100 to 250 Hours...I$50 per Seat (Min. $65) ...... $65 $60 Less than 100 HoursI 60 per Seat (Min. 75) ...... 7O 65 Amateur License...IPassenger carrying prohibited 80 75 Student License .... IPassenger carrying prohibited 85 80 The above rates are for $5,000/$10,000 limits for Public Lia- bility, $5,000 per passenger seat for Passenger Liability and $1,000 for Property Damage. Increased limits tables are used to obtain premiums for higher limits. The upper limit for passenger lia- bility is the limit per passenger seat times the number of seats insured.